In Suspense Ahead of Tariff Announcements

September 7, 2018

President Trump is expected to announce a huge ramp-up in tariffs next week, especially on imports of Chinese goods, and China will no to retaliate in kind. Some pundits worry this escalating trade war will hammer U.S. equities, depress U.S. growth, lift U.S. inflation, and further incentivize the FOMC to raise interest rates.

Stocks in Europe have declined 1.0% in Spain and the U.K., 0.8% in Italy, and 0.2% in France and Germany. Stocks in the Pacific Rim dropped 0.8% in Japan, 0.7% in Taiwan, 0.4% in China and 0.3% in Australia.

Markets also await U.S. August labor market statistics due later today.

The dollar fell back 2.2% against the Turkish lira, 0.4% vis-a-vis sterling, and 1.3% versus the South African rand. The U.S. currency is marking time relative to the euro and yen.

Yields on ten-year British gilt, German bund, and U.S. Treasury futures edged up a basis point.

Gold and oil are 0.2% stronger in price.

Euroland GDP growth was confirmed at 0.4% in the second quarter, matching the first quarter’s sequential advance. GDP had posted a quarterly gain of 0.7% in each quarter of 2017, by contrast. Real GDP got positive contributions in the second quarter of 0.3 ppt from business investment and 0.1 percentage point each from personal consumption, inventories, and government expenditures, but net exports exerted a 0.2 ppt drag. The on-year growth rate slowed to 2.1% last quarter from 2.4% in 1Q, 2.7% in 4Q17 and 2.8% in the third quarter of 2017.

German industrial production recorded a second straight monthly decline in July, dropping 1.1% after sliding 0.7% in June, This slashed its on-year advance more than in half to 1.1%.

German labor costs rose 0.2% on quarter and 2.0% on year in the second quarter of 2018.

The German current account surplus fell sharply in July to EUR 15.3 billion. The EUR 16.5 billion merchandise trade surplus was the smallest in 18 months. Seasonally adjusted imports jumped 2.8% from June’s level, while exports dropped by 0.9% on month.

Japan posted a JPY 355 billion customs trade deficit in the first twenty days of August compared to a surplus of JPY 153 billion a year earlier, with imports surging 19.6% on year but exports going up just 5.5%.

On-year growth in Japanese labor cash earnings slowed to 1.5% in July from 3.3% in June. But on-year growth in real household spending was positive for the first time in six months, albeit at just 0.1% in July.

Japanese reserves rose $3.029 billion last month, while Chinese international reserves fell $8 billion.

Japan’s index of leading economic indicators fell to a 21-month low in July. The index of coincident economic indicators was at a 5-month low but still earned a trend assessment of “improving” from officials.

French industrial production rose 0.7% for a second straight month in July, but construction output was 1.8% less than in the prior month. France had its largest trade deficit since December, a shortfall in July of EUR 3.49 billion. There was a EUR 0.50 billion current account surplus, however.

Spanish industrial production dipped 0.3% in July, its third monthly decline in the last four months. Norwegian industrial production sank 2.4% on month and 0.8% on year in July, but a 1.5% 12-month increase in manufacturing output was the most in 7 months.

On-year growth in Icelandic GDP accelerated to 7.2% last quarter from 5.6% in 1Q and 4.7% in the second quarter of 2017.

Italian retail sales dipped 0.1% in July, the fourth decline in 5 months, and this resulted in a 0.6% drop from July 2017.

Britain’s Halifax house price index edged up 0.1%, lifting the 12-month rate of rise to 3.7%, which is a 9-month high.

Australia’s construction purchasing managers index slid 0.2 points to a 2-month low of 51.8. That’s quite a bit below a reading of  57.2 last March. Aussie mortgage loans in July reversed just half of June’s 0.8% drop.

Just in: U.S. non-farm payroll employment advanced in August by a greater-than-expected 201K, but downward revisions to June-July employment totaling 50K exceeded the amount by which August surpassed street forecasts. The jobless rate stayed at 3.9%, missing expectations of 3.8%. But the most policy-significant finding in the Labor Department’s release was an accelerated growth in average hourly earnings to 0.4% on month and 2.9% on year.

Also just in: Canadian unemployment rose 0.2 percentage points in August to 6.0%, and an 82K jump in part-time workers during July was more than reversed by a 92K drop in August, which resulted in an overall decline of 51.8K workers after July’s rise of 54.1K.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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